FDI in the retail sector and multi-brand retail have the potential to solve India’s predicament of ‘jobless growth’
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Amidst the all-out rhetoric on growing trade wars and tariffs gripping the world economy, the Indian economy is placed in a sweet spot, with the most recent projection capping the growth rate at 7.2 percent for FY-24. At this rate, India will be one of the fastest-growing economies in the world, attracting further traction in both domestic and foreign investments. Even as inflation remains high, the neutral policy stance calibrated by the central bank has done little to dampen spirits. The exuberance evident in the stock market performance corroborates emerging consensus on macroeconomic stability. Despite heightened geopolitical headwinds, India has successfully kept the fiscal deficit under check by reining in import costs attributed predominantly to crude oil and gold. The relative weakness in the rupee has given further fillip to export competitiveness without exacerbating the trade deficit.
The exuberance evident in the stock market performance corroborates emerging consensus on macroeconomic stability.
Despite the positive narrative emerging on the macroeconomic front, the predicament surrounding so-called ‘jobless growth’ continues to acquire disproportionate attention among the chatterati. The widening income gap perpetuated by prophecies of India staring at the middle-income trap imminently demands impartial introspection to devise appropriate policy responses. A starting point inevitably hinges on the source of the labour participation data: the Periodic Labour Force Survey (PLFS) drafted by the Indian government and the Centre for Monitoring Indian Economy (CMIE) in the private domain. To mitigate any bias, it may be useful to assign equal weight to both numbers. Even then, the difference appears to be more cosmetic than real. Going by the current labour participation rate at 52 percent, policymakers would be well served in employing both public infrastructure and private investment (in both scale and size) to create jobs, contracting the yawning gap in income distribution. While the last Union Budget gave an impetus to job creation through the apprenticeship programme, heralding progress in the right direction, India cannot afford to remain complacent.
Having made significant progress in removing multidimensional poverty (MDP), India’s burgeoning middle class with relatively higher disposable incomes offers new avenues for job creation, especially for the youth, while calling for the formalisation of jobs. Towards this end, the potential afforded by the retail sector cannot be overlooked. India’s retail sector is expected to touch US$1.3 trillion by 2025, with e-commerce alone projected to reach US$100 billion by the end of this fiscal year. As one of the fastest-growing sectors in the Indian economy, the retail sector directly contributes 10 percent of the Gross Domestic Product (GDP), employing 46 million of the population. Interestingly, India’s retail sector creates income-generating opportunities for 400 million both in formal and informal sectors. This is evident since opportunities in the retail sector create multiplier effects, impacting real estate, logistics and supply chains, banking and finance, and trading sectors. It is against the backdrop of the significant statistical data that it becomes imperative to examine this sector critically from a job creation perspective. Hitherto, retail has largely been confined to the informal sector dominated by mom-and-pop stores (also known as ‘kirana’ shops) catering to the needs of consumers in both urban and rural regions. Even though the organised retail sector is catching-up, it accounts for only 12 percent of total retail turnover, presenting significant growth opportunities.
India’s retail sector is expected to touch US$1.3 trillion by 2025, with e-commerce alone projected to reach US$100 billion by the end of this fiscal year.
Currently, India’s organised retail sector is dominated by some of the biggest business conglomerates that capture a sizable chunk of the market share. Reaping the advantage of domiciling domestically, the organised retail sector operates in a monopolistic market setting. Discerning Indian consumers could benefit economically from increased market competition. With a presence in several sectors, business conglomerates have natural advantages of capital and space, which pose significant barriers to entry for pure-play retail enterprises.
On the e-retail front, the market looks equally promising, constrained only by fewer job opportunities. With a unilateral focus on cost-cutting, e-retailers have positioned themselves to lend a compelling price advantage to Indian consumers by averting costs associated with maintaining physical stores and deploying automation to improve the efficiency of operations while also trimming human resource costs. Despite multiple online retail brands, the market resembles a typical duopoly, with two of the biggest United States (US) corporations, Amazon and Walmart, dominating the space. In its existing altar, Indian regulations permit 100 percent Foreign Direct Investment (FDI) in online retail, as well as single-brand retail. The expansive spree of the Swedish major brand IKEA opening several stand-alone outlets across major metropolises in India offers a compelling rule book for foreign retailers looking at expanding their presence in India.
India must take a leaf out of China’s experience, where major global retail enterprises capitalised on its consumer boom despite the ongoing economic slowdown.
Expanding the scope of FDI by permitting multi-brand retail has the potential to usher in a game-changing opportunity for job creation accounting, with spillover effects in both organised and unorganised sectors. India must take a leaf out of China’s experience, where major global retail enterprises capitalised on its consumer boom despite the ongoing economic slowdown.
Ullas Rao is a Faculty member at the London Institute of Banking & Finance (LIBF) and an Associate Professor at the Vijaybhoomi University
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Ullas Rao is a Faculty member at the London Institute of Banking & Finance (LIBF) and an Associate Professor at the Vijaybhoomi University. ...
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